Many budding developers see that GST is payable on their new dev and seek to avoid this by choosing to retain the property for 5 years to rent and then GST doesnt apply. This can come with a few traps. 1. The GST on the land or the build may cease to be creditable and impact profit (reduce it); and 2. The decision to defer for 5 years is often changed. In many instances the GST on the land and the build may lapse and cease to be creditable; 3. The taxpayer may have made a decision without considering the Margin Scheme which may substantially reduce GST On the sale and allow almost all the GST on the land and build to be creditable. Often leaving little net GST payable. 4. Depreciation schedules may be impacted. Unclaimed GST will be a element of the cost of the respective Div 40 and Div 43 asset. 1-2. When does GST on the land and the build cease to be creditable? Bad news peeps. Its different to the GST on the sale. Its not 5 years. Possibly not even 4 years. GST credits expire 4 years and 28 days after the end of the quarter in which the payment for the land or the build cost is paid. eg Darth buys a lot of land and pays $440K inc of GST in May 2016. IN September 2017 he pays the builder $110,000 and in december 2017 pays $110,000 and in March 2018 pays a final amount of $135,000. Darth's GST credits will expire in the respective June 2020, September 2020, December 2020 and March 2020 BAS. But when GST tax credits expire it increases the build cost by the GST amount lost. This reduces taxable profit. 3. Using the Margin Scheme. Darth may have made a decision about GST thinking that if he sells the new build for $1.6m that $145,454 of GST will be payable. However he may have overlooked that the GST On the land and build (and others costs) will reduce this to at least $72k. If the margin scheme was used the GST may be reduced further. The margin scheme GST would be based on the sale price less the land cost ie $109K a further saving of $36K leaving total GST at just $36K. The difference between $145K and $36K means Darth is now armed with knowledge and he seek real estate opinion which says buyers prefer brand new dwellings and a new dwelling v a used one could have a $100K price drop. So the $36K of GST means a extra $100K in sales value. His friend Yoda describes this as "Sell as you must" 4. If Darth keeps it - What does he need in the way of records ? All developers who plan to keep property should ALWAYS retain records of the total costs that indicate the date every single payment is made. The info should also show ABNs (for the Reportable Payments Reporting each year !!) and keep records of the total amount, the GST included and any apportionment. This info will be used for: GST calcs and BAS preparation Tax (profit) calcs that are based on GST exclusive values when claimed Reportable Payments Reporting ATO audit enquiries ie Provide your three largest invoices in the Dec 2018 quarter as well as summary of all your build costs The summary also acts as a suitable basis to file original tax invoices which must be available for a GST claim and audit. Review is becoming more common place after the GST withholding regime was implemented. A copy of our developer worksheet with examples is provided. This is a simple version and is tailored to suit each client specific project when we provide advice.